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Sri Lanka is mired in an economic, debt and energy crisis unprecedented since its independence, and the people are struggling to survive.
Sri Lanka, an island country in the Indian Ocean, is located at the chokepoint of international shipping and is also a key part of China’s Belt and Road Initiative. The importance of international geopolitics can be seen at a glance.
Since the beginning of summer, the country’s unprecedented economic crisis has continued to worsen – foreign exchange has dried up, and energy supplies have also been cut off. Sri Lanka banned the sale of petrol and diesel for private cars as early as June. Necessities such as food and medicines have also risen sharply in price and are in short supply, a growing problem. Some experts pointed out that Sri Lanka is facing the worst economic crisis since independence from Britain in 1948.
At this moment, what are the actions of China, the United States, India, Russia and other major powers that have long hoped to increase their influence in this region?
fuel crisis
Colombo recently announced a moratorium on fuel sales to ordinary people until July 10 because Sri Lanka has run out of foreign currency to pay for imported commodities, including gasoline and diesel. The move is widely seen as the first time a country in the world has imposed fuel restrictions of this magnitude since the oil crisis of the 1970s.
In early July, Sri Lankan officials said the country had less than a week of fuel left to maintain essential services such as buses, railways and medical vehicles. The government also ordered schools to close and asked 22 million residents across the country to work from home.
Sri Lanka has meanwhile suspended gasoline and diesel sales for so-called non-essential vehicles and said the government does not have foreign currency to buy fuel, food and medicines in the international market.
Lose your life for refueling
Sri Lankan Energy Minister Vijay Sekela said that under normal demand, there is less than a day left in gasoline reserves. But he also said the next shipment of gasoline is expected to arrive in no more than two weeks.
It is reported that foreign companies are reluctant to continue to provide fuel to Sri Lanka because the state-owned oil company of Sri Lanka is deeply in debt of hundreds of millions of dollars, which is the main reason for the severe shortage of fuel.
rightpeople’s livelihoodInfluence and Social Response
Food and fuel shortages have caused prices to soar. Inflation is now as high as 30%. Power outages, lack of medicines have brought the health system to the brink of collapse.
Food prices in Sri Lanka started rising at the end of 2021, and people are now paying at least 30% more for food than they did a year ago. Many people can’t even guarantee three meals a day.
Beginning in early April, demonstrations broke out in Colombo, the capital of Sri Lanka, to protest against rising prices and shortages of supplies. The scale of protests continued to expand and gradually spread to all parts of the country.
Much of the popular anger over the economic crisis has been directed at President Gotabaya Rajapaksa and his brother, former Prime Minister Mahinda.
Protesters also raided the homes of prominent politicians, including the family of the ruling President Rajapaksa. The protests led to the resignations of Rajapaksa and his brother, former Prime Minister Mahinda, and a number of other government officials.
Internal and external imbalance crisis
Sri Lanka’s foreign exchange reserves have all but dried up. In May 2022, it failed to repay its foreign debt for the first time in its history.
The government says it is the Covid-19 pandemic that has affected Sri Lanka’s tourism industry – one of the country’s biggest sources of foreign exchange earnings. Colombo also said tourists were scared off by a series of deadly bomb attacks on churches in 2019.
However, many experts say mismanagement of the economy is to blame.
At the end of the civil war in 2009, Sri Lanka chose to focus more on supplying goods to the domestic market rather than trying to penetrate foreign markets. As a result, export earnings remain low, while import bills continue to grow.
Sri Lanka now imports more than its exports by $3bn (£2.3bn) a year, which is why foreign exchange is running out. The government has also accumulated huge external debts to countries, including China, to fund what critics call unnecessary infrastructure projects.
On domestic economic management, President Rajapaksa has also been criticized for the drastic tax cuts introduced in 2019. Finance Minister Sabri said those lost government revenues exceed $1.4 billion a year.
When the foreign exchange shortage in Sri Lanka became a serious problem in early 2021, the government tried to limit the use of foreign exchange by banning the import of fertilizers. The government also told farmers to use locally sourced organic fertilizers. The move resulted in widespread crop failures. Sri Lanka had to replenish its food reserves from abroad, which made its foreign exchange shortage worse.
Although the fertilizer ban was lifted in November 2021, an IMF report in March 2022 said it also hurt exports of tea and rubber, important economic products of Sri Lanka, leading to potentially significant losses.
A homeless woman on the streets of Colombo for the first time in Sri Lanka amid economic crisis
huge foreign debt
The Sri Lankan government has accumulated a foreign debt of $51 billion.
It will be required to pay $7 billion this year to repay those debts, with similar amounts for the next few years. The government is seeking a $3 billion emergency bridge loan from the International Monetary Fund to make payments.
The IMF said the government must raise interest rates and taxes as a condition of any loan.
The World Bank has agreed to provide Sri Lanka with a $600 million loan to address the immediate need.
Great Power Competition between China, America, India and Russia
Observers pointed out that the unprecedented economic crisis seems to have provided new opportunities for the influence of world powers to re-shuffle the cards in Sri Lanka. Previous analyses have pointed out that China has vigorously invested and developed in Sri Lanka in recent years, and it should be said that China has some advantages in terms of influence.
However, as the local economic crisis deepened, the United States, India, China and Russia have all moved again.
Washington said it would provide Sri Lanka with millions of dollars in aid, according to the Associated Press. The United States also announced a $120 million grant to small and medium-sized businesses in Sri Lanka, especially $5.75 million in humanitarian aid for those hardest hit by the economic crisis.
A delegation composed of senior officials from the U.S. Treasury Department and State Department is visiting Sri Lanka and will have extensive contacts with local political and economic circles to discuss the possibility of resolving the current economic crisis and planning for the future.
The US-Japan-India-Australia “Quad Security Dialogue” forum, which is regarded as targeting China in the Asia-Pacific region, also expressed its readiness to assist Sri Lanka at any time in response to its worst political and economic crisis since independence.
Is Sri Lanka a victim of China’s “debt trap”?
India, which has long regarded Sri Lanka as its “backyard”, has provided US$4 billion in loans during this crisis, which can be said to be the largest international deal. Sri Lanka is a major destination for Indian merchandise exports. India has pledged to provide another $1.9 billion and has pledged to potentially lend an additional $1.5 billion to import Sri Lankan goods.
Sriram Jolia, dean of the School of International Affairs at Jindal University, Sonnpat, India, believes that India can use the Sri Lanka crisis to “drive out” China’s influence there.
The G7 group of major industrial nations (Canada, France, Germany, Italy, Japan, the UK and the US) said they would help Sri Lanka get debt relief.
The roles of China and Russia
While the United States and India have stepped in, some analysts do not believe that China’s influence can be easily replaced, and they believe that it is unrealistic to say that India can take this opportunity to expel China’s influence. Such analysis also argues that the energy crisis could also push Sri Lanka closer to Russia, which is hostile to the West.
Since Russia’s invasion of Ukraine, the United States has urged countries around the world not to buy Russian oil. However, crisis-ridden Sri Lanka still bought 90,000 tonnes of Siberian crude in June.
In addition, according to the “Diplomat” magazine, two Sri Lankan government ministers are about to travel to Russia in recent days to seek the possibility of buying more cheap Russian oil.
China sees Sri Lanka as an “important hub on the Maritime Silk Road”. Because of China’s investment in Sri Lanka in recent years, China’s influence on Sri Lanka has increased significantly. China is Sri Lanka’s third-largest lender after Japan and the Asian Development Bank, accounting for about 10 percent of its debt. Sri Lanka currently owes China about $6.5 billion, and the two countries are in talks on how to restructure the debt.
However, while the United States and India are stepping up their efforts to enter Sri Lanka’s influence competition, China so far does not seem to be eager to directly aid Sri Lanka in large amounts.
Sri Lankan President Rajapaksa said in a recent interview with Bloomberg News that “China seems to have shifted its strategic focus (from Sri Lanka) to Southeast Asia and Africa. China seems to be less concerned with the economic problems of South Asian countries.”
Rajapaksa also said that “Sri Lanka has failed to obtain a $1.5 billion credit loan from Beijing” and “has not received an answer from President Xi Jinping about a request for a loan of $1 billion to purchase domestic necessities.”
Former Sri Lankan government minister Patali Champika Ranawaka said in an interview with local media recently that “China is very dissatisfied with the Sri Lankan government’s successive cancellation of investment projects by Chinese companies.”
Beijing’s official position remains that China continues to attach importance to developing its strategic partnership with Sri Lanka. After the crisis in Sri Lanka deepened, the Chinese government announced to provide Sri Lanka with a total of RMB 500 million in emergency humanitarian assistance. The Chinese side also promised to provide Sri Lanka with a total of 10,000 tons of rice. At the end of June, 1,000 tons had already arrived in the country.